By Martin Santa and Barbara Lewis
BRUSSELS (Reuters) - European Union leaders agreed to suspend visa and investment talks with Russia on Thursday in reaction to its seizure of Crimea, and said they would freeze Russian assets and withdraw from a G8 summit if Russia does not reverse course.
After six hours of talks to discuss how to respond to Russia's maneuvers against Ukraine, EU leaders took more far-reaching action than expected, spurred in part by a decision in the Crimean parliament to secede from Ukraine and join Russia.
"We have today decided to take actions ... notably to suspend bilateral talks with the Russian Federation on visa matters as well as talks with the Russian Federation on the new agreement" on investment and research cooperation, EU leaders said.
They also backed a decision by Britain, France, Germany and Italy - the European members of the G8 - to suspend preparations for the G8 summit in Sochi in June, with the possibility of calling off participation altogether if Russia does not engage in efforts to resolve the military stand-off.
"The solution to the crisis should be found through negotiations between the governments of Ukraine and the Russian Federation, including through potential multilateral mechanisms," European Council President Herman Van Rompuy said, reading from a communique agreed by all 28 EU leaders.
"Such negotiations need to start within the next few days and produce results within a limited time frame."
Diplomats said the EU's aim was to set out a three-step process, with sanctions pressure steadily increasing if Russia does not respond and start to engage in mediation.
Beyond the suspension of visa and investment talks, and the potential withdrawal from the G8 meeting, the EU will consider imposing travel restrictions on Russian officials, an arms embargo and asset freezes.
"Any further steps by the Russian Federation to destabilize the situation in Ukraine would lead to severe and far-reaching consequences for relations between the European Union and its member states on the one hand, and the Russian Federation on the other, which will include a broad range of economic areas," Van Rompuy said.
Earlier, U.S. President Barack Obama imposed travel bans on a number of Russian officials, although the White House said Russian President Vladimir Putin was not on the initial list.
The EU finds itself in a difficult situation. While many member states would like to impose tough sanctions on Russia, there are also reservations because of the high dependence many of them have on Russian oil and gas.
Britain also has concerns about moving too far to impose financial restrictions on Russia because of the large investments Russian businessmen and oligarchs have in London. Austria is heavily exposed to Russia's banking sector and also has reservations about the impact sanctions could have.
If Russia does not respond to the pressure, divisions among EU member states are likely to grow. Suspending visa and investment talks is relatively easy for the EU to do, but taking further-reaching steps towards an arms embargo, asset freezes or trade restrictions is likely to be much harder to agree on.
(Additional reporting by Justyna Pawlak, writing by Luke Baker; editing by Giles Elgood)